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McLaren International Trade

Solutions

Chapter 1: A Second Wave of Globalization


Teaching notes.
This chapter has three aims: (i) Introduction of some of the most important historical trends
collectively described as globalization, along with a definition of that term in its various forms.
(ii) Introduction of the core concept of the three big reasons for trade, which provide the three
branches of trade theory and thus the three big branches of the family tree of trade models,
provided at the end of the book and which serves as a map to the theories presented throughout
the text. (iii) Provide some familiarity with some basic stylized facts regarding globalization
worldwide. The last of these is partly relegated to the spreadsheet problems at the end of the
chapter. In case there are students who are not familiar with basic spreadsheet operations, it
may be useful for a TA to provide an optional tutorial on their use, but the great majority of
undergraduates are conversant enough with spreadsheets to do these problems without help.
The family tree is likely to be a great aid to students in keeping track of the relationships between
the various models as the course goes on, and so it is recommended to introduce them to it at
some point in class.
Solutions.
Problem 1-1
(Note: Clearly there is no one correct answer to this question.) The improvement of the
technologies for tracking and shipping, such as bar code scanners and software, has lowered
trade costs by allowing for easier and faster transportation. Another example is the development
of technologies allowing for better conservation of perishable goods.
A policy that promotes globalization is the end of the Multifibre arrangement, a system of quotas
restricting the exports of textiles and garments from developing to developed nations. This
system ended the first day of 2005. Another is the European Unions Everything But Arms
initiative, entered into in 2001, under which developing country exports can enter the EU dutyfree (except, of course, for armament, as the name implies).
Problem 1-2
(Note: See accompanying spreadsheet for more detail. It is recommended that students do not
hand in a spreadsheet or printouts from a spreadsheet, but rather present a brief report on their
findings from the spreadsheet with a level of detail roughly comparable to what is presented
here.)
The average level of openness in the world increased between 1971 and 2001, from 54.8% to
80.0%. It had a slight fall between 1981 and 1991. Openness in each year is calculated in
columns AA through AD in the spreadsheet, and the average across countries for each year is
shown at the top.

Copyright 2013 John Wiley & Sons, Inc.

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McLaren International Trade

Solutions

Problem 1-3
Out of 105 countries in the sample, openness between 1991 and 2001 increases in 79 of them.
The rest, 26, experience a decrease. Column AG in the spreadsheet has a "1" for countries where
openness increased between these years, and a 0 for the countries where it decreased.
Problem 1-4
The 20 largest and 20 smallest countries in terms of population (in 2001) are shown in column
AJ. Their openness is shown in column AL. Average openness (in 2001) for the 20 largest
countries is 54.4%, and for the 20 smallest, 118.2%.
Problem 1-5
The 20 richest and 20 poorest countries in terms of GDP per capita (in 2001) are shown in
column AP. Their openness is shown in column AR. Average openness (in 2001) for the 20
richest countries is 1.003, and for the 20 poorest, 0.603.
Problem 1-6
Based on the results found above, smaller and richer countries tend to be more open. Smaller
countries tend to produce a more narrow range of products and thus meet more of their
consumption needs through imports. The relationship between wealth and openness is harder to
disentangle. It could potentially mean that trade promotes growth and open countries become
rich a possibility explored in Chapter 9. It could also mean that wealthier countries have better
policies in general, and that having low barriers on trade is an example of that, or that consumers
in wealthier countries consume a broader range of consumption goods other things being equal
and so tend to import a larger fraction of their consumption.

Copyright 2013 John Wiley & Sons, Inc.

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